Thursday, March 5, 2015

Fun and Games with the Federal Open Market Committee

While the world's economy teetered on the edge in 2009, the great minds at the Federal Reserve could still see humour in the pain.  Recently released transcripts from the Federal Reserve's 2009 Federal Open Market Committee meetings show us that the world's most powerful central banks found time for a few laughs even while the rest of Main Street saw their savings disappear and the value of their homes plunge.

The January 27 and 28, 2009 meeting opened with quite a bit of humour as you can see in this exchange:

"CHAIRMAN BERNANKE. As you know, Governor Kroszner resigned in anticipation of the appointment of the new Governor, Dan Tarullo. But Dan has not yet cleared the Senate, so obviously he won’t be attending the meeting, which leaves the Governors here as an embattled few, [laughter] and I think the lowest number of sitting Governors probably in a very long time.

MR. FISHER. Not in quality.

MR. LACKER. We will go easy on you. [Laughter]

CHAIRMAN BERNANKE. Thank you. Let me also welcome the new members cycling into the FOMC as voting members—Jeff Lacker, Charlie Evans, Dennis Lockhart, and Janet Yellen. The first part of the meeting is the annual organizational part for the FOMC, so we will be just in FOMC mode for the next few minutes. After we do that business, we will go into a joint Board–FOMC meeting, as earlier I discussed and we talked about this new way of operating. We need to begin with the election of Committee officers. I need a motion for appointment of the Chairman.

MR. KOHN. Mr. Chairman, it is a pleasure and an honor to recommend Ben Bernanke to be Chairman of this Committee. I am not sure what sins you committed in an earlier life, but I sure hope you had fun. [Laughter]

MR. HOENIG. It’s the first nomination I’ve heard like that. [Laughter]"

We all know how annoying those endless junk mail outs for credit cards can be.  Apparently, even America's central bankers suffer from this indignity.  From the same meeting, here is a brief exchange between Charles Plosser, then President of the Federal Reserve Bank of Philadelphia and Karen Dynan, then a member of the Board of Governors of the Federal Reserve about the tightening of standards on credit cards:

"MR. PLOSSER. The second clarifying question—I’m curious about tightening standards on consumer loans, particularly credit cards, in exhibit 4. When you asked a banker in the survey about tightening credit card lending, how am I supposed to interpret that? Does that mean that they have reduced physically or technically the credit limits on credit cards? Does it mean that they are offering fewer credit cards?

MS. DYNAN. Brian can correct me if I am wrong, but I believe it is more the latter— offering fewer credit cards.

MR. PLOSSER. It has been great that I get much fewer requests to apply for credit cards. [Laughter]"

The January 27 and 28, 2009 meeting was a real "laughapolooza" with 58 episodes of laughter warranting recording on the official transcript.

Here is what Janet Yellen, then President of the Federal Reserve Bank of San Francisco had to say during the FOMC meeting held on March 17 and 18, 2009:

"The economic and financial news has been  grim. Things are now so bad that I actually open the Greenbook with greater trepidation than my 401(k)."

"Another disturbing sign of how tough things are getting is that people appear to be breaking into their piggybanks to make ends meet—the Cash Product Office reports huge increases in the amount of coins being brought into our inventory."

Of course, both of these comments were followed by laughter.  In fact, Ms. Yellen reported that the December inventories of quarters and dollar coins were up more than 50 percent from 2007, and even pennies were up nearly 25 percent as Californians cashed in their change in the hope that they could save themselves from personal financial devastation. 

During the same meeting, there was an interesting exchange between Chairman Ben Bernanke and and Charles Evans, then President of the Federal Reserve Bank of Chicago:

"CHAIRMAN BERNANKE. Do you think there’s an aggregation externality in liquidity—getting activity going again so that people issue and so on? That would be one reason why it would stimulate additional activity.

MR. EVANS. Yeah. It seems like a hope at the moment. And I’m not opposed to hoping a lot. [Laughter]

CHAIRMAN BERNANKE. I think that’s our best tool right now.

It is most reassuring that the great minds of the Federal Reserve had "hope" as their best monetary tool in early 2009, isn't it?

In a discussion about taking "haircuts" on assets purchased by the Federal Reserve under TALF (the Term Asset-backed Securities Loan Facility that was used to prod consumers back into taking out more debt by supporting the issuance of asset-backed securities) Elizabeth Duke, then a member of the Board of Governors of the Federal Reserve, states that:

"The second thing is that I don’t think you can make a bad asset into a good one by taking a larger haircut. If we’re going to be taking assets not from banks, but from anybody who wants to disgorge them, then what would keep us from simply moving assets from one hedge fund to another? And I really get concerned that the Fed ends up getting stuck trying to digest every hairball that’s out there in the marketplace. [Laughter] That’s a technical term, “hairball.”"

In total, during the March 17 and 18, 2009 meeting, there was sufficient laughter at 37 separate occasions to warrant its appearance on the transcript.

While there wasn't the same high degree of humour at the June 23 and 24th, 2009 FOMC meeting.  Here's an exchange between Brian Sack, then Manager of the System Open Market Account and Donald Kohn, then a member of the Board of Governors of the Federal Reserve, during a discussion whether the Fed would be able to meet its own expenses (i.e. they were in a negative capital situation) as they undertook phase one of quantitative easing and whether the U.S. Treasury Department would bail them out: 

"MR. KOHN. And finally for Seth, are there any consequences of not covering our expenses? Can we pay dividends? Do we continue to pay salaries? [Laughter] For the Governors we can do that out of spare change—the vending machine receipts will pay the Governors’ salaries—but what about for the rest of you?

MR. SACK. If you’re going to go down that road, you should make the salaries responsive to the upside as well. [Laughter]"

Let's close with this lengthy exchange between Ben Bernanke, Richard Fisher, then President of the Federal Reserve Bank of Dallas and Vice Chairman William Dudley:

"MR. FISHER. Thank you, Mr. Chairman. I recently accompanied my wife to a board meeting of the American Film Institute, of which she is a director, in President Yellen’s District in Hollywood, and to prepare for that trip I read Evelyn Waugh’s wonderful novel The Loved One: An Anglo-American Tragedy. The plot line is about a minor British poet who goes to write the greatest movie of all time about the life of Percy Shelley and settles for employment at a pet cemetery called The Happy Hunting Ground. There’s a precious scene in that novel where the tough head of the film studio is surrounded by people around a table and in the back benches. The people around the table are described as “yes men” and those on the back benches as “nodders.” I find myself nodding and saying yes—[laughter]—to everything that has been said by my predecessors at this table. There is a unanimity of view, it seems to me, that, as President Yellen just pointed out, the economy is bottoming out, but it is a gradual and fragile recovery, and it will take a long time to regain employment. I forecast an almost checkmark-shaped recovery, which is a long recovery, as President Rosengren stated, with the unemployment rate masking some of the problems we have with our workforce, and I do not foresee a very quick recovery.

What concerns me is that the people that I talk to, the CEO list that I give you, and even the people we talked to in that part of the country, which is not known for being plugged into reality, also have a unanimous view. I want to touch on two aspects that were mentioned by my predecessors here. The first is with regard to President Rosengren’s point that unemployment may be masking deeper problems. Even in your District, President Rosengren, I noticed that Harvard Law School just sent out a letter recommending that their graduating class seek employment in other fields—perhaps at pet cemeteries; I’m not quite sure. [Laughter] If you look at Skadden, Arps or Cravath, Swaine, & Moore, people that I talk to, they have deferred an entire class in terms of their hiring. So here’s the point: I think we also need to be cognizant of the fact that the service sector is going to have a very slow recovery in the process. This was underscored by the CEO of AT&T, who said, “If it isn’t life or death, we’re not hiring anybody or investing in anything.” And I think that’s pretty much a unanimous view around the table of CEOs that I spoke to. (my bold)

Second, President Lockhart mentioned cap-ex. Cap-ex is being postponed. When you have excess slack, you’re going to have less commitment to cap-ex. But here’s the point I want to mention: Among the CEOs that I speak to, and even people that you would never expect to be critical—I’ll drop a name, because it was absolutely shocking, Warren Beatty, for example— there’s a unanimous worry that, “The plethora of programs coming out of Washington is creating enormous uncertainty.” Uncertainty is the enemy of decisionmaking, the enemy of capitalism. We’ve talked about this before. It’s not that changes are being proposed. It’s that no one knows when they will stop, and I find that this has heightened uncertainty in the business sector and is retarding cap-ex. And that won’t change until there is resolution about the enormous changes that have been proposed by the Congress, by the Administration, and so on. It’s not that the business community and others are against the proposals, it’s that there are so many coming so quickly that it’s creating enormous uncertainty. Thank you, Mr. Chairman.

CHAIRMAN BERNANKE. Is this the Warren Beatty who starred in Reds? [Laughter] 

MR. FISHER. Also Heaven Can Wait. [Laughter]

CHAIRMAN BERNANKE. Thank you. Vice Chairman.

VICE CHAIRMAN DUDLEY. Well, hopefully heaven can’t wait too long. [Laughter]" 

Now we know that, when the world's economy is standing on the brink of a complete meltdown, even the central bankers at the world's most influential central bank have a keen sense of gallows humour that helps them weather the storm.


  1. Laughter certainly is a way to deal with unease and nervousness. So not knowing how often these types of meetings generate laughter, I would make the supposition that those in attendance were quite nervous about the ongoing state of affairs. Also Mr. Fisher seems spot on about the lack of Cap-ex and about the recovery taking a long time and about hiding the true length of the ongoing recovery by using the employment figures. He missed the stock market going through the roof but that occured after the QE happened. This insight is very interesting.

  2. Well, so there's humor. So what?